Author Topic: Canadians - RRSP Advice - Cheap index option?  (Read 1878 times)

misterhorsey

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Canadians - RRSP Advice - Cheap index option?
« on: September 09, 2018, 05:30:03 AM »
Hi Canadians!

Can anyone recommend a straightforward way of investing in something like Vanguard's VGRO for their RRSP?

I'm actually an Australian MMM-er with a time poor sister who is a Canadian citizen and lives in Vancouver.  While visiting her a few months ago the topic of pension plans came up (because I started talking about it!) and it didn't take long for her to a) realise how high the fees on her current RESP arrangements are; and b) decide that she wanted to do something about it.

She came across Wealth Simple and asked my opinion about it.  We don't have established roboadvisers in Australia (as far as I know). But from what I can see it's a decent service, cheaper than a standard pension plan, has a few nice bells and whistles, but with a 0.40% fee plus the MER % fee it's still a little expensive for what it is (and you could probably live without some of it's features as well). So I'm wondering what options are there might be.

I did my own research and found the Vanguard Asset Allocation ETFs https://www.vanguardcanada.ca/individual/indv/en/product.html
and thought if you could just find some kind of wrap account to administer the ETFs then that would be ideal. 

I appreciate that pension plans admin is a little more complex than straight up investing, due to the tax deferral status, as well as the built in ease for adjusting asset allocations, but it shouldn't be 1.5% (and higher) admin fee type of complexity - which is kind of what she is paying at the moment.

I also saw this thread (https://forum.mrmoneymustache.com/investor-alley/canadians-resp-and-rrsp-advice-please!/) but didn't want to muddy it as that deals with the educational fund thing.  Apologies to the mods if this seems to similar. Happy to have them combined if that's preferable. However I was pleased to find that I settled on the same Vanguard ETF option as identified in that thread. Always nice to know you are on the right track.

Also, I struggle to understand the complexities of Australian pension plans (aka superannuation) and it's taken me a little while to get my head around aspects of the Canadian system, so please be gentle with the jargon and acronyms!

Thanks in advance for your thoughts and suggestions.
« Last Edit: September 09, 2018, 06:06:14 PM by misterhorsey »

Kashmani

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Re: Canadians - RESP Advice - Cheap index option?
« Reply #1 on: September 09, 2018, 04:47:08 PM »
RESPs are a strange beast. The lifetime contribution limit is $50,000, but government only matches for up to $2,500 annually, and only up tp $36,000 total. That means the optimum strategy is to contribute $14,000 immediately when a child is born, and then $2,500 in each subsequent year until the maximum of $50,000 is reached.

If your sister is like most young parents (myself included), she will not have $14,000 sitting around as a lump sum to put into an RESP and will instead contribute $2,500 every year, into the late teenage years. In that case, there are two cheap investment options:

1) Invest a lump sum of $2,500 once a year in an ETF.  Vanguard VBAL is an option that automatically rebalances and includes a world-wide balanced portfolio. A discount brokerage like TD Waterhouse would charge a commission of $10 for each purchase.

2) Make biweekly contributions. In that case, an index fund is too expensive as a result of commissions, but TD Canada Trust has a series of mutual funds called "e-series" with a very low management exchange ratio. This is the option I have used with my kids. I am contributing $100 per child biweekly, split as follows:

$25 - Canadian Index - e
$25 - U.S. Index - e
$25 - International Index - e
$25 - Canadian Bond Index - e

I have had an excellent experience with TD and would recommend them. They can set up either a TD Waterhouse trading account (for option 1) or a mutual fund account (for option 2).

misterhorsey

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #2 on: September 09, 2018, 06:22:31 PM »
Oh crap. I actually meant the RRSP, and I have changed the subject heading accordingly!

See what I mean about getting confused with the jargon.

So sorry about that.

I appreciate the RESP advice however. It does sound like a strange beast! I don't know where she is with hers but is contributing them for her older teenage kids.

But I was hoping to get RRSP advice first and then sort out the RESP later.  Her current financial adviser is actually from TD Canada Trust. I'm glad your experience with the TD family has been good, but her advisor has steered her into relatively high fee fund options, and was opaque and not forthcoming with details about the fee structures when she asked. Very annoying!

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daverobev

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #3 on: September 09, 2018, 06:28:47 PM »
'Something like', why not just open a Questrade account and buy VGRO? Simple.

misterhorsey

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #4 on: September 09, 2018, 07:16:12 PM »
Wow it's as easy as that? 

Down here the default is to go through a Pension Plan provider and a lot of admin, and fees, and you never see your money your employer pays it and its locked away until your 65.  You can DIY but it entails an annual audit which makes it less cost effective unless you have Big $$.

Thanks. I'll do some reading on Questrade

daverobev

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #5 on: September 10, 2018, 08:51:48 AM »
Questrade is just the cheapest/easiest. No fee on ETF purchases.

Yeah, Canada is certainly different with RRSPs - you can take out when you want, it just gets added to your taxable income, and the room is lost permanently. A smart thing is to take money out in a low/no income year.

Kashmani

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #6 on: September 10, 2018, 09:47:46 AM »
Advisors are just salespeople. The secret is to ignore them. I learned that the hard way in my early 20s.

For my RRSPs I just have a TD Waterhouse discount trading account. It is possible to buy TD mutual funds in that account, as well as ETFs. So the bulk of my savings are sitting in a series of four Vanguard ETFs (the all-in-one Vanguard funds did not exist when I bought them), and my biweekly contributions go into the same four e-series mutual funds that I listed for RESPs. All in all a pretty cheap and hands-off portfolio.

The Questrade option may be a good one as well. I have never used Questrade, but that would allow you to just use a single index fund and forget about it.

misterhorsey

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #7 on: September 12, 2018, 07:02:11 PM »
Questrade is just the cheapest/easiest. No fee on ETF purchases.

Yeah, Canada is certainly different with RRSPs - you can take out when you want, it just gets added to your taxable income, and the room is lost permanently. A smart thing is to take money out in a low/no income year.

Thanks Daverobev.  It just seems too easy, I had to let it sit for a while.  And buying an asset allocation ETF means you don't even have to diarise a rebalancing.  I've always been skeptical of my own ability to rebalance, when the time comes to actually rebalance, so this makes it easy.

misterhorsey

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #8 on: September 12, 2018, 07:05:38 PM »
Advisors are just salespeople. The secret is to ignore them. I learned that the hard way in my early 20s.

For my RRSPs I just have a TD Waterhouse discount trading account. It is possible to buy TD mutual funds in that account, as well as ETFs. So the bulk of my savings are sitting in a series of four Vanguard ETFs (the all-in-one Vanguard funds did not exist when I bought them), and my biweekly contributions go into the same four e-series mutual funds that I listed for RESPs. All in all a pretty cheap and hands-off portfolio.

The Questrade option may be a good one as well. I have never used Questrade, but that would allow you to just use a single index fund and forget about it.

Thanks for your input as well Kashmani. Hopefully others don't have to learn that hard way about advisors. These forums didn't exist when I started out working so perhaps its a little easier for the next gen to education themselves, or at least be exposed to an alternative option to a high fee salesperson advisor getting commissions from high fee active funds.

The diversified ETFs are great. I just wish the option was around when I first started investing.  I currently have a diversified Vanguard fund, but I also started out with an Australian ETF and a World ex Aus ETF. I just know I won't be rebalancing the last two every well.

lollipop_hurricane

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #9 on: September 13, 2018, 11:37:33 AM »
I'm in Canada and we were using Tangerine Bank to buy a fund very similar to Vanguard's VFINX.  Has anyone done the math on buying Vanguard's EFT versus investing in a similar S & P index fund? 

I am kind of hating on Tangerine right now, just cause their customer service is awful.  However, their index funds are still good and they have a pretty low expense ratio, at least for Canada. 

daverobev

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #10 on: September 13, 2018, 12:09:45 PM »
I'm in Canada and we were using Tangerine Bank to buy a fund very similar to Vanguard's VFINX.  Has anyone done the math on buying Vanguard's EFT versus investing in a similar S & P index fund? 

I am kind of hating on Tangerine right now, just cause their customer service is awful.  However, their index funds are still good and they have a pretty low expense ratio, at least for Canada.

The only thing remaining for Tangerine is simplicity. 1.07% MER is high vs the competition these days; you can get TD eSeries funds (and have to rebalance yourself) for 0.35ish %, or you can get VGRO for 0.25%.

For someone that isn't terrified of having an account and logging in every so often to reinvest, VGRO is great (not perfect - too much Canada, and an odd selection of bonds). In comparison, Tangerine funds are a complete rip off.

lollipop_hurricane

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #11 on: September 13, 2018, 12:22:47 PM »
Thanks for the info dave.  I just checked out the TD Series and they look good so far.  Where do you buy VGRO?  Is VGRO just an individual stock that tracks Vanguard?  I never heard of it before. 

Also, what does it mean to rebalance myself? 

Retire-Canada

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #12 on: September 13, 2018, 01:20:07 PM »
Thanks for the info dave.  I just checked out the TD Series and they look good so far.  Where do you buy VGRO?  Is VGRO just an individual stock that tracks Vanguard?  I never heard of it before. 

Also, what does it mean to rebalance myself?

VRGO is a all-in-one Vanguard ETF:  https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9579/assetCode=balanced/?overview

You can buy VRGO at any self-serve brokerage [like Questrade] that offers Vanguard ETFs.

If you hold multiple ETFs vs. a combined all-in-one product you'll have to adjust the relative values of the multiple ETFs as the drift from your desired allocation overtime. This is a simple operation that might take you 15 mins once a year.

Goldielocks

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #13 on: September 13, 2018, 04:35:14 PM »
I'm in Canada and we were using Tangerine Bank to buy a fund very similar to Vanguard's VFINX.  Has anyone done the math on buying Vanguard's EFT versus investing in a similar S & P index fund? 

I am kind of hating on Tangerine right now, just cause their customer service is awful.  However, their index funds are still good and they have a pretty low expense ratio, at least for Canada.
Tangerine MER's are over 1% and VGRO (and the other 2 new vanguard wrap products for asset balancing) are 0.22%. 

I am recommending the vanguard ones to people I know.   << gulp - you just made me double check that I could buy them with any standard trading account -- whew, I can>>

If they don't have  an online account for trading yet, then I also recommend that they use the one attached to their bank, for ease of fund transfers.  People who want the Vanguard wrap funds will not have to worry if their trades cost $9.99 versus $5.99 (or even lower) because they will have so few trades in a year, typically.

For other MMM active types, who may have a range of accounts, note that Questrade is about the lowest for trading fees, low account fees (open / close / maintain) and they keep it competitive, but is not the cheapest for creating Bond ladders / bond purchases (they don't really do this online).   Itrade (scotia) is very good for Bond purchases and low fees including account setup fees.  They let you invest in high interest savings from within the Itrade account setup, so it does not have to be in a money market, and they tend to pay strong interest rates for high balance savings accounts. CIBC Investors Edge is low trading fee and nice easy interactive screens, and TD Canada Trust has their commission free "e series" plus free / low mutual funds, and exceptional trader / phone support but still charges $9.99 per trade.
« Last Edit: September 13, 2018, 04:38:30 PM by Goldielocks »

K-ice

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #14 on: September 15, 2018, 11:25:25 PM »
For other MMM active types, who may have a range of accounts, note that Questrade is about the lowest for trading fees, low account fees (open / close / maintain) and they keep it competitive, but is not the cheapest for creating Bond ladders / bond purchases (they don't really do this online).   Itrade (scotia) is very good for Bond purchases and low fees including account setup fees.  They let you invest in high interest savings from within the Itrade account setup, so it does not have to be in a money market, and they tend to pay strong interest rates for high balance savings accounts. CIBC Investors Edge is low trading fee and nice easy interactive screens, and TD Canada Trust has their commission free "e series" plus free / low mutual funds, and exceptional trader / phone support but still charges $9.99 per trade.

Just be careful what the minimum balance is required for the annual administration fees to be waived. My SO and I have most of our investments with RBC.  They waive the fees once the combined accounts exceed $15K.

They had about $5K with CIBC Investor's edge and were charged $100/year. This is an account they hadn't look at for about 5 years so it lost 10% in fees alone.  We checked and I think you need $10K in non registered and $25K in an RRSP combining doesn't help. 

We recently transferred the CIBC investments over in-kind and RBC offered to waive the closing fees as well.

I'm not familiar with TD but just be careful.


10 2go

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #15 on: September 16, 2018, 12:16:45 PM »

Just be careful what the minimum balance is required for the annual administration fees to be waived. My SO and I have most of our investments with RBC.  They waive the fees once the combined accounts exceed $15K.

They had about $5K with CIBC Investor's edge and were charged $100/year. This is an account they hadn't look at for about 5 years so it lost 10% in fees alone.  We checked and I think you need $10K in non registered and $25K in an RRSP combining doesn't help. 

We recently transferred the CIBC investments over in-kind and RBC offered to waive the closing fees as well.

I'm not familiar with TD but just be careful.

Hello!

If I am replying wrong I apologize :)

I am brand new to this forum but need some Canadian advice as to how to get started.

I have become an avid reader to the MMM blog and want to put into motion some extra investments so I can "retire" in 10 years.  I noticed you mentioned RBC and I was curious if they offer the same investments I can get through Questrade.  It would be easier for me but if not that's ok.  Would like to learn how to invest myself or find a good all-in-one low maintenance package while I become more familiar to eventually do it myself.  Also, are ETFs the same as index funds and do you receive dividends and are the dividends re-invested back in within a TFSA account?  I'm thinking of this for tax purposes.

I know it sounds confusing but I'm confused myself.  Any insight would be most appreciated!! :)

Retire-Canada

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #16 on: September 16, 2018, 12:22:52 PM »
Also, are ETFs the same as index funds and do you receive dividends and are the dividends re-invested back in within a TFSA account?  I'm thinking of this for tax purposes.

I know it sounds confusing but I'm confused myself.  Any insight would be most appreciated!! :)

Some ETFs are index funds. Some ETFs are not index funds. You should be able to get all the major indexes covered by a variety of ETFs so getting the asset allocation you want with ETFs won't be an issue.

You get dividends on most of the commonly held ETF index funds people talk about on these forums. You can have the dividends re-invested automatically with some funds and some brokerages, but not necessarily all of them. This won't matter for tax purposes. In a TFSA all investment returns are tax free hence the name Tax Free Savings Account and in a taxable account you will pay tax on those dividends whether or not they are automatically reinvested. Also note that you can only own full shares of an ETF so if you get $50 in dividends and the cost of a share is $35 your brokerage will buy one share of the ETF for you and leave $15 cash if you have it setup for automatic re-investment.

10 2go

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #17 on: September 17, 2018, 06:12:00 AM »
Thank you Retire-Canada!  That definitely helps :)

Goldielocks

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #18 on: September 17, 2018, 10:38:29 AM »
Questrade offers nearly identical investments to the big banks.  The differences:

- Less $$ with questrade for most things.  Very lowcost option for ETF / Index fund investors.
- Getting money in /out of questrade is not as easy as an online transfer from your chequing account.  But once you set up your system  for money transfers with them, is not too big of a deal.
- Questrade does not have the same ability to buy a wide variety of BONDS directly, and they cost a bit more.  Most people aren't looking for BONDS right away, however.
- Big Banks may offer GICs, High interest savings accounts, or their own mutual funds  / other mutual funds for no fee commissions.   (but many, not all, mutual funds usually have higher MERs).   Many of these products aren't offered by Questrade (again, not a problem for most).





10 2go

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #19 on: September 18, 2018, 06:58:36 PM »
I was leaning towards Questrade actually.  I just wanted to get feedback on the options and if I'm going in the right direction.  It sounds like I am so thank you for that and your help :)

Lews Therin

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Re: Canadians - RRSP Advice - Cheap index option?
« Reply #20 on: September 19, 2018, 07:55:33 AM »
There's a forum topic with questrade referrals, it's pretty much you ask for a referral, and someone new will send you yours. Nice way to get the bonuses for both you and the other person if you don't already know someone with Questrade.